From Facebook to Google, More Corporate Cash Investing in Satellite Projects

Major corporate investment in satellite systems is likely to grow, financing experts said Tuesday in New York at SatCon. As "the Googles of the world" step into this space, "it's something for the industry to take advantage of," said John Schuster, principal with 32 Advisors' Project and Structured Finance practice. Satellite mergers and acquisitions -- slower than expected in recent years -- almost surely will pick up, said Randy Russell, co-head of Americas Telecom Investment Banking at Deutsche Bank.

Joint ventures like Facebook's partnering with Eutelsat on a satellite-based broadband offering for Africa (see 1510280014) or Google's investing in SpaceX (see 1501150063) are particularly long-term business investments, with the hope they eventually translate into more users, said Alexis Sainz, a Millbank Tweed space-finance lawyer. "You can't really assess them on traditional metrics -- they're looking at a long-term play," said James Park, senior vice president with investment firm TAP Advisors. Companies also use such investing as a means of staying current on emerging technology trends and of pre-empting competition, Park said: "Too many old-line companies have missed the boat completely."

M&A has been slow due to complications ranging from the regulatory backdrop to share-ownership structures of particular companies, Russell said. But the current boom in investment in satellite projects means many more satellite startups -- many of which will fail and many of which will be acquired, he said. Commercial satellite projects also are often challenged to find investors due to the possibility of holdups in manufacturing or launches, leading to timeline worries, Park said.

The U.S. commercial satellite industry was hit by the shutdown of the Export-Import Bank (see 1509210026). Schuster, formerly head of the bank’s Structured Finance Division, said Ex-Im reauthorization will likely come in December through one of a couple of different legislative avenues in the House: "Chances look good."

Speakers at multiple sessions Wednesday were optimistic the satellite industry is on the verge of sizable technological changes. Pointing to PCs making computing ubiquitous, Vulcan Aerospace President Chuck Beames said "we see space at that same inflection point." Low-cost launching -- a major area of interest for the investment firm -- "is going to open up the entrepreneurial class" in applications ranging from communications satellites to weather, Beames said.

But the market seems somewhat frozen by that proliferation of ideas and technology, SSL President John Celli said. Customers "are literally pausing -- they're saying, 'Should I buy now, should I wait for new technology?'" Investment in expensive broadband-centric constellations may ultimately fail, Celli said, because the Internet is on the path to becoming a free offering. "The economics will only be there for companies that provide content, not services," he said, citing AT&T/DirecTV.

As that rapidly changing technology raises the risk of satellites becoming obsolete before the end of their life cycles, companies are working on such goals as software-defined satellites, in which frequencies or beam footprints can change with reprogramming, said Kay Sears, president of Intelsat subsidiary Intelsat General. The industry also would likely see smaller satellites with shorter lifespans "if we could buy a $40 million launch," she said.